Dividend Tax Creadit

[Cooperinliverp00l]

Ok i have read some stuff on the forum and i'm totally confused about what the tax credit is for on Dividends..Would my assumption below be right

LTD has profit of 20k so Corp tax @21% is taken with what being left handed out as dividend with NO tax credit detailed

LTD has profit of 20k so Corp tax @21% will eventually be taken from this but in the mean while the dividend is handed out with a tax credit shown which is the amount of tax which would have come off.

I can't join the Corp tax rate with the tax credit rate of 10%

This tax stuff is confusing

[QwertyBerty]

This might help:

http://www.direct.gov.uk/en/MoneyTax...nts/DG_4016453

[chrisl]

Dividends are taken out of your company profits after corporation tax has already been paid. To prevent double taxation (both corporation tax and income tax being charged on the same profits), the dividend received carries a tax credit, which effectively “franks” your net dividend for the basic rate of taxation.


This means you don’t pay any further tax on your income if you are a basic rate taxpayer (i.e your taxable income is less than £34,800 for 2008/09).


The tax credit is 10% of the gross dividend. What you actually receive from the company is the net dividend.


For example:-


Company pays net dividend of £9k. (This is equal to 90% of the gross dividend of £10k)

Tax credit is £1k. (10% of the gross dividend)



If you are a basic rate taxpayer, you pay 10% of the gross dividend in tax. This is considered already paid via the tax credit, hence no more tax to pay.



If you are a higher rate taxpayer, you would be charged tax at the rate of 32.5% of the gross dividend in tax, i.e £3,250. From this liability would be deducted the tax credit of £1, so your net higher rate liability is £2,500, which is equivalent to 25% of your net dividend of £9k.

[dehydratedskulls]

The tax credit is 10% of the gross dividend. What you actually receive from the company is the net dividend.


For example:-


Company pays net dividend of £9k. (This is equal to 90% of the gross dividend of £10k)

Tax credit is £1k. (10% of the gross dividend)

Forgive me for being a bit stupid...but here goes....
So I would only pay myself 9k from my company and record a dividend of 10k in my accounts ?
Or would I get the whole 10k ?

I think I've been paying myself the gross dividend. Is this wrong ?

[slackbloke]

Forgive me for being a bit stupid...but here goes....
So I would only pay myself 9k from my company and record a dividend of 10k in my accounts ?
Or would I get the whole 10k ?

I think I've been paying myself the gross dividend. Is this wrong ?

Yep, that is wrong, you should only pay yourself the net dividend. The tax credit is used in your personal tax calculation (effectively it counts as income although you never actually receive it).

The dividend for your company accounts is also recorded as the net amount.

[dehydratedskulls]

Yep, that is wrong, you should only pay yourself the net dividend. The tax credit is used in your personal tax calculation (effectively it counts as income although you never actually receive it).

The dividend for your company accounts is also recorded as the net amount.

Thanks for helping clear that up.
So I just need to make sure the net divs + tax credit is under the higher rate income threshhold.

[slackbloke]

Thanks for helping clear that up.
So I just need to make sure the net divs + tax credit is under the higher rate income threshhold.

Yes, exactly

[PhilAtBFCA]

Dividned Tax Credit

Just to add the corporation tax at 21% into the calculation:-

Net Profit of the company = £11,392.40
Less Corporation Tax = £2,392.40
Net Dividend Paid = £9,000

Phil

[Badger]

So when is the Tax Credit part paid to HMRC?

[QwertyBerty]

So when is the Tax Credit part paid to HMRC?

Never, it's a notional tax. It simply serves to lower the 40% threshold.

QB.